Trader Talk

Railroads And Buffett

Railroads are up: Union Pacific and CSX up 7 percent, Norfolk Southern up 5 percent — and it's not because everyone thinks all the railroads will be bought out.

The core point is that Buffett believes he can get a substantial rate of return, despite paying a 30 percent premium.

What this says is: 1) the rails are substantially undervalued, and 2) since Buffett made it clear that this is a bet on a recovery, it is likely that 2010 earnings estimates for the railroads are too low.

Elsewhere: the India gold purchase: pro-gold, anti-dollar, or what? A new high for gold today as India bought 200 metric tons (a metric ton is about 2,200 pounds)—that's about $6.7 billion--from the IMF at an average price of $1,045—not a lot of money, but they bought at a new high. Not even a volume discount!

It is DEFINITELY gold-positive (and hard asset-positive). Less clear is whether it is dollar negative. The Indian Finance Minister made it clear it does not mean they prefer gold over the dollar.

But it is a pretty clear indication that central banks will be diversifying their holdings to protect against the weaker dollar.



Questions?  Comments?